Banking

It’s a terrible time to buy a car, but a great time to sell them

Hyundai SUVs at a car dealership.

  • Prices for used and new cars have soared to ridiculous heights.
  • That’s not great for buyers, but it’s fantastic for the country’s biggest dealership groups.
  • Companies like Autonation and Penske are notching record profits and gobbling up rivals.

You or I might wince at the notion that the average new car will now run you more than $45,000. But the country’s biggest car dealers? They’re loving it.

The same bloated prices that are frustrating buyers are fueling record profits for the largest dealership groups in the US.

AutoNation, the country’s largest dealer of new cars with over 300 locations, posted profits of $361.7 million for the quarter ended September 30, roughly double its net income from the same period of 2020. Lithia Motors’ profits are up 94% year-over-year, and its third-quarter revenue of $6.2 billion represents a 70% jump over last year.

Penske Automotive Group, which deals in consumer vehicles and other transportation services, has made $876.1 million in income so far this year, a 155% increase over the same nine months in 2020.

While these three mega dealers only represent some 500,000 of the roughly 14.5 million vehicles sold in the US last year, their financial statements provide a rare look under the hood at dealer economics as the pandemic upends vehicle production and sales.

Their profits are surging despite a computer-chip shortage that’s dealt a huge blow to vehicle manufacturing worldwide. The supply of new cars has plummeted across the board, but dealers have made a killing on the vehicles they’re able to sell. Big margin increases have offset stagnating sales volumes.

The average new vehicle in the US is trading for close to $300 above sticker price, according to Edmunds, helping dealers eke out a larger profit on every vehicle sold.

During the third quarter, AutoNation made close to $5,500 on each new car sold, more than triple its profits per vehicle during the same period in 2019. In the third quarter of 2020, Lithia’s stores made an average of $2,900 on each new car they moved. This year the figure has almost doubled.

Dealers have also gotten a boost as limited availability of new cars fuels booming demand for secondhand vehicles. AutoNation’s used-vehicle volumes rose 20% this quarter, while used-vehicle revenue soared 53%. Lithia’s same-store used-vehicle revenues are up 40% year-over-year.

Amid surging profits and sales, all three of the country’s largest car dealers have been on a buying spree, gobbling up smaller groups to expand their footprints.

AutoNation in October said it’s buying nine luxury dealerships in a deal that’s expected to boost annual revenue by $420 million. Lithia has added 56 locations in 2021, including 34 through a single acquisition. Penske recently completed its takeover of a Japanese luxury dealership group.

How long will the tight inventories, inflated prices, and huge appetite for cars last? Industry watchers say the supply of new vehicles won’t rebound for at least the next year, and AutoNation’s outgoing CEO Mike Jackson agrees.

“Consumer demand continues to outpace supply, driven by consumer desire for personal transportation and ongoing manufacturer supply-chain disruption. We expect this to continue well into 2022,” Jackson said during a recent call with investors, adding that low inventory levels and pent-up demand “should support sales for the foreseeable future.”

Customers, meanwhile, are left with no room to haggle, limited selection, and hurting wallets.

Share this news on your Fb,Twitter and Whatsapp

File source

Times News Network:Latest News Headlines
Times News Network||Health||

Tags
Show More

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button
Close